Why Snap Stock Is Down By 23% Today

Snap Stock Dives As Apple’s Privacy Rules Put Pressure On Revenue

Shares of Snap found themselves under significant pressure after the company released its third-quarter results. The company reported revenue of $1.07 billion and adjusted earnings of $0.17 per share, beating analyst estimates on earnings and missing them on revenue.

The changes to Apple’s iOS platform put pressure on the advertising business. According to Snap, changes to ad tracking made more difficult to manage ad campaigns for iOS, while Apple-provided measurement solution did not work as well as Snap expected.

In addition, current supply chain issues and labor shortages reduced companies’ desire to advertise their products and services. Thus, Snap received a double hit from changes in Apple’s privacy policy and pandemic-related issues.

What’s Next For Snap Stock?

Currently, analysts expect that Snap will report earnings of $0.36 per share in 2021 and $0.8 per share in 2022, so the stock is trading at 72 forward P/E even after the major pullback.

Snap is richly valued like many tech stocks in the current market environment. At such valuation levels, Snap shares are very sensitive to any negative changes in the company’s growth outlook.

The hit from Apple’s privacy policy changes was bigger than the market and the company itself expected, and it remains to be seen whether Snap will be able to solve its Apple-related problems in the fourth-quarter of this year.

At the same time, the company will also have to deal with pandemic-related shortages which have put pressure on businesses’ desire to advertise their products. Judging by recent developments in various industries, these problems may persist well into 2022, so analysts may have to adjust their 2022 earnings forecasts for Snap.

The stock remains very expensive, and even speculative traders may wait for additional pullback before buying Snap shares. However, the general risk appetite remains strong, so Snap stock may get more support in case S&P 500 moves towards the 4600 level.

For a look at all of today’s economic events, check out our economic calendar.

Volatility Dead Ahead for Snap Shareholders

Snap Inc. (SNAP) reports Q3 2021 earnings after Thursday’s closing bell, with analysts looking for a profit of $0.08 per-share on $1.1 billion in revenue. If met, earnings-per-share (EPS) will mark an eightfold increase over the penny earned in the same quarter in 2020. The stock took off for the heavens after beating Q2 estimates by wide margins and raising guidance in July, jumping nearly 24%, but has barely budged in the last three months.

Third Quarter Under-Performance

MKM Partners’ Rohit Kulkarni previewed the report on Wednesday, noting “While SNAP shares hit new all-time highs on Sep. 24, they have faded since then, and have resulted in intra-quarter underperformance (-3%) vs. S&P 500 (+2%) since 2Q earnings. We agree with our technical analysis, we think Snap shares are likely to trade rangebound around its support and resistance levels, “low 70s” and “mid-80s” after earnings this week.”

Intra-quarter data compiled by Kulkarni looks promising, with the analyst expecting the company to beat Q3 top and bottom line estimates, but not by enough to attract new investment. In addition, he’s looking for trading after the release to focus on Q4 revenue guidance, which is not expected to exceed 50% year-over-year. The number of Q3 subscriber additions could also move the post-market tape, with current estimates around 1 million net adds.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating, based upon 26 ‘Buy’, 3 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42 to a Street-high $111 while the stock is set to open Thursday’s session about $13 below the median $88 target. The broad range between high and low highlights conflicting viewpoints on the intermediate outlook, which has translated into a volatile +/- 12% implied move after the release.

Snap posted an all-time low in single digits in 2018 and turned higher, returning to the 2017 high in the 20s in June 2020. It broke out on heavy volume in October, entering a trend advance that stalled at 73.59 in February 2021. The stock mounted the barrier in July but has made no progress since that time, grinding sideways in a trading range between low 70 and the mid-80s. It’s now trading in the dead center of the pattern, suggesting a major catalyst will be needed to break the deadlock.

For a look at today’s economic events, check out our economic calendar.

Disclosure: the author held Snap in a family account at the time of publication. 

Snap Perfectly Positioned for Rally Into Upper 80s

Snap Inc. (SNAP) broke out above five-month resistance after strong Q2 earnings in July and promptly went to sleep, grinding sideways in a dead pattern that’s now lasted for more than five weeks. Breakout buyers have failed to book a penny of profit during this period, with that single price bar acting as an impenetrable barrier. Even so, it’s nearly impossible to make a bearish call on the social media app because their growth has been spectacular in the last two years.

Growth Firing on All Cylinders

The company booked a surprise profit of $0.10 per-share during the second quarter, beating estimates by $0.11. Revenue rose a phenomenal 116.2% year-over-year to $982.11 million, more than $130 million higher than consensus. 293 million daily average users (DAUs) marked a 23% year-over-year increase, inducing executives to issue upside Q3 guidance that now expects between $1.07 and $1.085 billion in revenue, compared to prior $1.01 billion expectations.

Wedbush analyst Ygal Arounia raised his price target to $88 after the news, noting, “Snap delivered exceptional 2Q21 results both on the top line and EBITDA, with materially better than expected 3Q revenue guidance as well. The digital advertising market is clearly strong and picking up steam as the global reopening and strong economic environment moves forward. Snap is seeing strength across the board, from multiple verticals (including retail and restaurants), and across all its ad products.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating after a historic 456% return since the start of 2020, based upon 24 ‘Buy’, 3 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42.20 to a Street-high $110 while the stock is set to open Tuesday’s session about $12 below the median $87 target. This placement suggests that any positive catalyst will generate a rapid advance to new highs.

Snap completed a round trip into the 2017 high in the mid-20s in July 2020 and broke out in October, entering a sustained advance that stalled at 73.59 in February 2021. A shallow correction worked off overbought technical readings through time instead of price, ahead of a powerful one-day rally after Q2 earnings on July 23rd. A mid-August breakout attempt failed, yielding a slow downward drift that could now offer a low risk buying opportunity.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Stock Index Futures Show Poise Ahead of Monday’s Open

The Dow Jones Industrial Average reached a milestone last week that will be tough to top this week. The index added more than 230 points on Friday to finish above 35K for its first time in history. Friday’s performance brings the Dow’s year-to-date gains to 14% and clinches four consecutive days of finishing in the green. It has been a little over three months since the Dow crossed the 34K threshold for the first time as the bulls continue to flex their muscles.

The S&P 500 and tech-heavy Nasdaq were both up more than 1% on Friday.

Stock index futures are basically flat with a slight leaning to the downside on Sunday evening as investors brace for Monday’s trading. Tech earnings are the name of the game this week. The oil price continues to rebound and is moving fractionally higher to above USD 72 per barrel on expectations that supply constraints will persist for the rest of 2021.

Stocks to Watch

Earnings season is in full swing. All eyes will be on Tesla on Monday when it reports its Q2 results after the closing bell. The company already revealed that it had more than 200K deliveries in the quarter, its best ever for a single quarter. Wall Street is largely expecting the EV maker to top analyst estimates with its earnings, which could fuel the stock higher. Tesla chief Elon Musk hinted at Tesla resuming bitcoin payments soon.

Separately, Snap Inc’s value ballooned by more than 23% on Friday on the heels of better-than-expected results on the top and bottom lines. The social media company’s results were fueled by a robust online ads market in addition to more daily active users.

If Snap’s earnings are any indication, good things could be ahead for tech giants Facebook, Google’s Alphabet and Amazon.com, which are on tap to report quarterly results this week.

Look Ahead

An FOMC meeting will unfold on Tuesday and Wednesday. Policymakers are not expected to roil the markets by shaking up monetary policy despite rising inflation, according to Wells Fargo economists. Meanwhile, investors will get the first glimpse into Q2 GDP on Thursday.

Lockheed Martin reports its quarterly results before the opening bell on Monday. Also this week, more earnings are in the pipeline, including the likes of Dow component Boeing.

U.S. Stock Markets Hit New Highs, Treasury Yields up as Choppy Week Ends

Megacap tech stocks and positive corporate earnings helped drive main U.S. indexes up again. Yields on U.S. Treasuries were also up, as was the dollar, with investors eyeing next week’s Federal Reserve meeting for hints on the U.S. economic recovery from the COVID-19 pandemic and when the central bank will pull back support for the economy.

“It’s certainly been a really strong run. For now it looks justified based on the strong earnings results. We got interest rate stability, which was helpful. As the economic recovery continues, as long as people are continuing to get out there despite the Delta variant, we think stocks can go higher,” said Jeff Buchbinder, equity strategist for LPL Financial. “We think the ride will get bumpier in the second half, but we think the bull market continues.”

The Dow Jones Industrial Average rose 238.2 points, or 0.68%, to close the week at 35,061.55, while the S&P 500 gained 44.31 points, or 1.01%, to 4,411.79. The Nasdaq Composite added 152.39 points, or 1.04%, to close at 14,836.99.

The greenback on Friday booked a second week of gains after a volatile few days as risk appetite waxed and waned.

The dollar index, which measures the greenback against a basket of six major currencies, was slightly higher on the day at 92.894. That was off a 3-1/2-month high of 93.194 hit on Wednesday.

For the week, it was up 0.1%, after rising 0.6% previously.

The yield on 10-year Treasury notes hovered around 1.3%, or almost 17 basis points higher than a five-month low set on Tuesday, but was still at the low end of a recent range. The benchmark note traded up 2.1 basis points to 1.288% after briefly rising above 1.3%.

“We’re closing out the week on a very nice trade, and it’s being driven by earnings primarily and earnings specifically in stocks that speak to the consumer, which is not a new story but it’s a story that adds momentum to the trade in the second half of the year,” said Peter Kenny, founder of Kenny & Co LLC, the parent company for Strategic Board Solutions and Kenny’s Commentary, a subscriber-based political and economic newsletter.

After declining earlier in the trading session, oil was set to end the week slightly up.

Investors have been assuming “things will improve, travel will increase,” said Steve Massocca, managing director at Wedbush Securities. “There are concerns about the Delta variant.”

Massocca added, “If that thesis is thrown into jeopardy, it put a hitch in the ‘giddy up’ in the market.”

Some parts of the United States are implementing mask mandates again due to new COVID-19 cases, while others have not, leading to confusion.

U.S. business activity grew at a moderate pace for a second straight month in July amid supply constraints, suggesting a cooling in economic activity, a report from data firm IHS Markit showed on Friday.

Positive corporate earnings helped the stock market. American Express Co jumped 1.7% after posting second-quarter profit that beat expectations.

Social media firms Twitter Inc and Snap Inc gained 3.8% and 24.5%, respectively, after their upbeat results.

Financial markets have swung from one direction to another this week as investors try to assess what the surging Delta variant means for the world economy.

After recording its steepest one-day drop since May on Monday, the S&P 500 stock index went on to post the biggest one-day jump since March a day later. Currency, bond and commodities markets have seen similar gyrations.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Jessica DiNapoli; Additional reporting by Dhara Ranasinghe and Wayne Cole in Syndey; Editing by Ana Nicolaci da Costa, Will Dunham, Pravin Char, Dan Grebler and Raissa Kasolowsky)

 

Why Snap Stock Is Up By 22% Today

Snap Stock Rallies As Company’s Q2 Report Highlights Strong Growth

Shares of Snap gained strong upside momentum and moved to all-time high levels after the company released its second-quarter results.

Snap reported that its revenue increased by 116% year-over-year to $982 million, easily beating analyst estimates. GAAP loss of $0.10 per share and adjusted profit of $0.10 per share also beat analyst expectations.

The company noted that daily active users (DAU) increased by 23% year-over-year to 293 million, while the average revenue per user (ARPU) was $3.35. It should be noted that DAU increased in all segments and platforms, highlighting the breadth of Snap’s growth.

In the third quarter of 2021, Snap expects to report revenue of $1.07 billion – $1.085 billion. Adjusted EBITDA is projected to be $100 million – $120 million compared to $117 million in the second quarter.

What’s Next For Snap Stock?

The market was very impressed by Snap’s quarterly report, and the stock was up by as much as 22% at the time of writing. This is not surprising as the market remains hungry for growth, and Snap achieved healthy growth in various market segments and platforms.

Currently, analysts expect that Snap will report earnings of $0.22 per share in 2021. In 2022, the company’s profit is projected to grow to $0.67 per share, so the stock is trading at 115 forward P/E.

This is an extremely rich valuation but that’s what the market is ready to pay for a 117% revenue growth. As usual with the high-growth tech stories, the market is looking beyond the next year.

At the same time, rich valuation makes the stock vulnerable to any disappointing news. However, Snap has just released a great quarterly report, so such concerns should not have any material impact on the stock in the near term. The general market remains bullish due to the strong support from the Fed, and traders remain ready to buy expensive growth stocks, which is bullish for Snap.

For a look at all of today’s economic events, check out our economic calendar.

Snap Strength Bodes Well for 3rd Quarter Breakout

Snap Inc. (SNAP) is well-positioned to break out after Q2 2021 earnings on Jul. 20, even though the messaging app provider isn’t expected to post a profit. Price action in the last quarter has been extremely productive, shaking off a 20% decline into the upper 40s in May and carving a steady advance that’s now stretched within five points of February’s all-time high in the low 70s. Accumulation readings have followed suit, lifting to an all-time high.

Management Forecasting 50% Growth

There’s no argument that Snap needs to do a better job keeping users engaged in upgraded features that analysts believe will increase revenue through targeted advertising. Even so, management is forecasting 50% sustained growth in the next several years, raising high expectations ahead of the report. They’ll need to deliver on all fronts to make that happen, but a flurry of Q2 initiatives and updates seem to support that lofty prediction.

Stifel’s John Egbert posted a bullish note after Snap’s Partner Summit in May, noting “a number of product and business updates including an expanded set of augmented reality creation tools, new content monetization opportunities, more capabilities for developers via Snap Kit APIs/Games/Minis, and the company’s next generation Spectacles hardware. He also remarked that Snap now has “more than 500mm monthly active users globally, which compares to 280mm DAUs reported as of 1Q:21 and implies at least 56% daily engagement”.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating based upon 26 ‘Buy’, 2 ‘Overweight’, 9 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42 to a Street-high $100 while the stock is set to open Wednesday’s U.S. session about $12 below the median $80 target. Given strong second quarter accumulation, this looks like a perfect set-up for a strong advance into the low 80s.

Snap rallied more than 300% in 2020 before topping out at an all-time high in the low 70s in February 2021. It sold off into the upper 40s in March, rounding out a trading range that has contained second quarter price action. A successful test at range support in May has stroked buying interest, lifting price into a test of the first quarter peak. At this point, all that’s needed for a breakout is a modestly bullish catalyst.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why Shares Of Snap Inc. Are Down By 4% Today?

Snap Inc. Video 26.04.21.

Snap Pulls Back

Shares of Snap found themselves under pressure as the stock lost positive momentum which was gained after the quarterly earnings report that was released at the end of the previous week.

On Friday, shares of Snap moved higher as the market reacted to the quarterly report which beat analyst estimates on both earnings and revenue.

The company reported that daily active users increased by 22% year-over-year to 280 million.  Meanwhile, free cash flow totaled $126 million in the first quarter of 2021, which was the first quarter of positive free cash flow for Snap as a public company.

Snap stated that it expected to report revenue of $820 million – $840 million in the second quarter of 2021, up from $770 million in the first quarter. The company expects to report Adjusted EBITDA between -$20 million and breakeven.

What’s Next For Snap?

Reaching positive free cash flow was a big milestone for Snap. However, it looks that the market is starting to pay more attention to valuations as S&P 500 is at record highs.

Analysts expect that Snap will report earnings of $0.20 per share in 2021. Earnings are projected to increase to 0.65 per share in 2022, so the stock is trading at roughly 90 forward P/E at current levels.

This is a very rich valuation so Snap will have to show significant growth to justify current stock price levels. It remains to be seen whether the company will be able to develop sufficient momentum as the world slowly gets back to normal which may hurt growth of companies which benefited from increased demand for digital services during the pandemic.

At this point, multiple compression is the main risk for Snap investors. If Snap fails to show rapid growth after a very strong 2020, the valuation premium that the market is ready to pay for the stock will decrease, and Snap shares may gain significant downside momentum.

At the same time, it should be noted that demand for high-growth tech stocks remains solid, so Snap stock has decent chances to get back to the upside mode in the upcoming weeks.

For a look at all of today’s economic events, check out our economic calendar.

Snap Expected To Report a Losing Quarter

Snap Inc. (SNAP) reports Q1 2021 earnings after Thursday’s closing bell, with analysts looking for a loss of $0.05 per-share on $739.6 million in revenue. If met, earnings-per-share (EPS) will be 38% higher than the same quarter in 2020, when the company also lost money. The stock rose more than 9% in February after beating Q4 2020 top and bottom line estimates and posted an all-time high at 73.59 just three weeks later.

Struggling with Monetization

The messaging app provider fell 25 points into the end of March, bouncing at support in the upper 40s, and is now trading in the upper half of a four-month trading range. However, longer-term relative strength cycles predict the current correction is likely to persist into the third quarter, lowering odds for an immediate breakout.  In the meantime, Snap needs to do a better job keeping users engaged in upgraded features that increase revenue through targeted advertising.

Credit Suisse analyst Stephen Ju reiterated the firm’s ‘Outperform’ rating and $80 price target this morning, noting “if we are to take the management forecast for 50% sustained growth for the next several years at face value, our sensitivity analysis suggests SNAP shares can double over the next 3 years. More near term, we increase our revenue forecast for 1Q21 to +60.3% (from +58%) year-over-year based on positive channel checks”.

Wall Street and Technical Outlook

Wall Street consensus matches Credit Suisse’s upbeat view, with an ‘Overweight’ rating based upon 26 ‘Buy’, 2 ‘Overweight, 10 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $40 to a Street-high $91 while the stock is set to open Tuesday’s session about $16 below the median $76 target. Investors hope this humble placement supports rapid upside after a strong quarterly report, especially if the company posts an unexpected profit.

Snap hit an all-time low in single digits in 2019 and entered an uptrend that mounted 2017 resistance near 30 in October 2020. The stock posted a 306% annual return before topping out in February 2021 and eased into a correction that is generating garden variety selling pressure. This price action should eventually support a trip to new highs but downside could easily reach long-term support in the mid-40s before attracting the buyers needed for another trend advance.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Snap Under Pressure After Downgrade

Snap Inc. (SNAP) is trading lower by more than 1% in Monday’s pre-market after Bank of America Securities downgraded the stock.  Analyst Justin Post dropped his rating to ‘Neutral’, citing high valuation after 2020’s historic gain, noting that additional multiple expansion is “unlikely” in coming quarters. The downturn continues an intermediate correction that started after the social media provider posted an all-time high at 73.59 on Feb. 24.

Traders Grow Skeptical

The downgrade comes less than two weeks after CEO and co-Founder Even Spiegel boasted that Snap could see 50+% revenue growth “for a few years”.  He detailed his optimistic view, expecting app penetration to reach 50% of smartphones in the United States. He also insisted the company could capture up to 2% of the U.S. advertising market due to users’ depth of engagement. Market players took a more skeptical view, dumping the stock 15% in the next two sessions.

The analyst explained his rationale for the downgrade, noting, “we think investors may become increasingly concerned on tougher 2H comps, especially in context of a broader economy that should be accelerating. While the anticipated acceleration in sector revenue growth in 2Q will likely be a positive data point, our call is that high-multiple stocks could be rangebound on valuation and that we have better 2H reopening ideas with likely acceleration vs deceleration”.

Wall Street and Technical Outlook

Wall Street consensus remains upbeat despite worries about valuation, with an ‘Overweight’ rating based upon 26 ‘Buy’, 1 ‘Overweight’, and 11 ‘Hold’ recommendations. One analyst now recommends that shareholders close positions. Price targets currently range from a low of $40 to a Street-high $95 while the stock is set to open Monday’s session about $23 below the median $80 target. This low placement strongly suggests that Main Street disagrees with the bullish assessment.

Snap topped out at 29.44 one day after coming public in March 2017 and entered a decline that posted an all-time low in 2019. The subsequent recovery wave reached the prior high in October 2020, yielding a breakout that booked high percentage gains into the February peak. A selloff into early March found support at the 50-day moving average but Monday’s downturn signals a second test at that level, with a breakdown exposing additional downside into the mid-40s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Snap Rockets to All-Time High After Major Shakeout

Snap Inc. (SNAP) is trading near an all-time high in Wednesday’s pre-market after shaking off Tuesday’s 11% decline and lifting more than 24% off the midday low.  Wild price action tracked similar market behavior after the social messaging app sold off in reaction to better-than-expected Q4 earnings on Feb. 5. The enthusiastic dip buying highlights exceptionally strong interest that could eventually lift the stock well into triple digits.

Snap Analyst Day

The company’s first analyst day as a public entity was well received by Wall Street, with members of that community calling the event a ‘resounding success”.  Focus on the ‘five pillars” — Camera, Map, Communication, Stories and Spotlight – gained the respect of participants. Head of Product Development Peter Sellis then surprised the group, boasting “revenue growth north of 50% for multiple years”, well above current expectations.

Pivotal Research Group raised their Snap target to $95 after the event, noting “CFO Derek Anderson wrapped the event with a frame work around: a) TAM for SNAP relative to smart phone penetration — still relatively nascent b) reiterated the 50% multi-year growth goal and c) provided a frame work around revenue opportunities for the five pillars. In spite of the gross margin commentary, we would expect a material increase to 2022-2024 revenues and EBITDA. We are increasing our PT to $95 from $81.50 based on 17x 2023 EV/Revs.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 26 ‘Buy’, 1 ‘Overweight’, and 8 ‘Hold’ recommendations. However, four analysts now recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $15 to a Street-high $92 while the stock will open Wednesday’s U.S. session about $3 below the median $75 target. Sustained upside is possible with this placement, fueled by momentum traders.

The stock broke out above the 2017 high at 29.44 in October 2020 and took off in a powerful uptrend that entered a rising channel, confirming strong institutional sponsorship. It topped out in the mid-50s in December and eased into a rectangle that worked off overbought technical readings through time instead of price, ahead of a February breakout that’s stair-stepping to new highs. This marks a nearly picture-perfect upstand that’s likely to continue for months to come.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

U.S. Market Wrap and Forecast for Monday

January’s Non-Farm Payrolls report added 49,000 new jobs while the unemployment rate fell from 6.7% to 6.3%. December jobs were revised sharply lower, continuing a bleak employment scenario as the Western world works through the last stages of the winter’s second pandemic wave. The equity market yawned and bonds sold off after the news, squaring positions into the weekend so that short-term options market makers get paid.

Ford vs. Tesla

SP-500 Volatility Index (VIX) fell to the lowest low since early December. GameStop Inc. (GME) shareholders declared their loyalty in a widely read Reuters article, ready to become the bagholders of a new generation. Ford Motor Co. (F) CEO Jim Farley (no relation) declared the new Mustang Mach-E will compete successfully with Tesla Inc.’s (TSLA) Model Y, forgetting that brand is everything in the third decade of the new millennium.

Snap Inc. (SNAP) recovered after a 9% post-earnings decline, lifting to an all-time high. Fitness juggernaut Peloton Interactive Inc. (PTON) fell into the 140s despite beating top and bottom line estimates and raising first quarter guidance. The company has to compete with real fitness centers in coming quarters, lowering expectations about their vertical growth trajectory. Wynn Resorts Ltd. (WYNN) hit an 11-month high despite a 58.5% year-over-year revenue decline, offering shareholders an opportunity to get out with their capital still intact.

Heading into Monday

Fourth quarter earnings season draws to a close next week, with reports from Dow components Cisco Systems Inc. (CSCO) and Walt Disney Co. (DIS) as well as Twitter Inc. (TWTR), and General Motors Co. (GM). Disney is trading near an all-time high even though their wildly successful streaming service has done little to replace income lost from empty movie theaters, dry-docked cruise ships, and socially-distanced theme parks.

Sky’s the limit for U.S. equities, at least until the Biden administration hits a brick wall with their massive stimulus bull. At least to the point, left-leaning politicians have avoided most of the logistical mistakes made by the Obama administration in 2009.  The Republican Party is trying to rebrand itself after the departure of Donald Trump and their infighting has allowed the Democratic-controlled Congress to move aggressively on economic policy.

For a look at all of today’s economic events, check out our economic calendar.

Twitter Rallies to a 6-Year High

Twitter Inc. (TWTR) rallied to a 6-year high in the first hour of Wednesday’s U.S. session, following a key JPMorgan upgrade. The stock has been on a roll so far in 2020, now posting an impressive 72% year-to-date return. Even so, the social media giant is still trading 20 points below December 2013’s all-time high at 74.73, highlighting years of sub-par performance compared to rival Facebook Inc. (FB) and other industry players.

Trading at Discount to Rivals

The stock is trading at a substantial discount to Snap Inc. (SNAP) and Pinterest Inc. (PINS), with both issues zooming to all-time highs this year. However, a new advertising platform, ongoing activist pressure, and a management buyback plan are improving mixed sentiment, raising odds the company will earn up to 30 times 2022 EBITDA (earnings before interest, taxes, depreciation, and amortization) and 9.5 times projected 2022 revenue.

JPMorgan analyst Doug Anmuth upgraded the stock to ‘Overweight’ on Wednesday, raising the price target to $65 while noting, “we are bullish on online advertising in 2021 and expect industry growth to reaccelerate. We believe Twitter will show the biggest rebound given its sharper pandemic-driven ad decline, along with revenue prioritization throughout the company, early benefits from rebuilt ad tech through the new Ad Server and rollout of Map 2.0, and increases in both advertiser count and ad load”.

Wall Street has been playing ‘catch-up’ throughout the year, with Twitter outperforming their modest expectations. Consensus stands at a mixed ‘Hold” rating based upon 7 ‘Buy’ and 19 ‘Hold’ recommendations. One analyst now recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of just $36 to a Street-high $65 while the stock opened Wednesday’s session $8 above the median $47 target.

Wall Street and Technical Outlook

A 7-week rally has now mounted resistance at the .618 Fibonacci retracement of the 2013 to 2016 downtrend at 51, opening the door to continued upside that should reach the .786 retracement at 62. That price level is narrow-aligned with multiple whipsaws that followed the 2014 reversal, marking the last major barrier before Twitter reaches and tests the all-time high in the 70s. While all systems are ‘go’, a trip into that peak could easily take another 6 to 12 months.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

A Wall of Worry Provides a Great Buying Opportunity for NFLX and SNAP

For a bull trend to perpetuate it occasionally needs to climb a wall of worry. Bearish investors are always on the lookout for a theme that will provide them with an opportunity to short a stock or sector. If prices rise, investors who shorted-shares will need to cover, perpetuating the bull-trend rally. This concept has recently played out when it comes to large-tech and communication stocks which have seen their stock prices temporarily decline as regulatory scrutiny has become the next wall of worry.

Congress is Always Looking to Flex in Muscles

Congress always needs a whipping boy. Social media outlets continue to be the target of congressional frustration and more recently have been drawing the ire of several oversight committees. Most recently, Facebook and Google have been accused of engaging in anti-competitive, monopoly-style tactics. The House of Representations antitrust panel found during a 16-month investigation that these two companies relied on dubious, harmful tactics to achieve their dominance in web search and social networking. The Department of Justice announced on October 20, that it will file an antitrust lawsuit against Google.

Social media platforms, like Facebook, and Snapchat,  have repeatedly found themselves in the United States government’s crosshairs as their power has continued to grow since the 2016 elections. Social media companies have no designated oversight authority that regulates their activities.  If these companies get slapped with new rules, regulations, and fines it could trigger a broad market selloff for stocks. This fear has recently been priced into some of the more attractive large-cap tech shares which have provided an excellent buying-point within a long-term bull trend.

Buying Opportunity in Snapchat

Snap Inc, is an American company and maintains several products and services, namely Snapchat, Spectacles, and Bitmoji. The share price is in the midst of a bull trend but recently pulled-back into oversold-territory as the wall of worry gained traction. SNAP is scheduled to release quarterly earnings results after the closing bell on October 20, 2020. The social media concern is expected to report earnings per share of  $-0.05 versus $-0.04 a year ago, on revenue of $549 million. Analyst estimates of SNAP’s earnings have remained unchanged over the past 30-days, and the company is expected to begin turning a profit in 2021.

From a technical analysis perspective, SNAP share price is in a strong uptrend as seen on the combo chart of the 30-minutes and daily chart provided. I see SNAP with potential measured move using a Fibonacci extension to reach $39 per share before the year-end.

Notice the oversold zone on the SNAP chart shaded lime green. That is the first oversold pullback after a new trend takes place. The 30-minute price chart saw both an RSI below 30 and a fast stochastic below 20, which is an ideal low-risk entry point. The daily chart of SNAP also shows that the share price is fast approaching its all-time high which occurred right after its IPO. A break of this level will lead to an acceleration in price to its target Fibonacci level near $39 per share.

Netflix Has its First Oversold Pullback in a Fresh New Uptrend

I believe that Netflix’s business model of providing subscriptions to streaming entertainment is benefitting substantially from COVID-19. The company is scheduled to report financial results after the bell on October 20, 2020. The company is expected to deliver earnings per share of $2.13 versus $1.47 per share a year ago. Revenue is forecasted to rise to $6.38 billion.  The average earnings per share estimate have climbed slightly more than 1% during the last 7-days. Growth estimates are expected to expand by nearly 45%. Global subscriptions are forecast to rise sharply higher as the U.S. unemployment rate surged and more people were stuck at home during the pandemic.

The technical picture shows that NFLX recently dipped as the wall of worry drove prices down temporarily. NFLX is in a fresh new uptrend and just had its first oversold zone pullback. The 30-minute chart reflects a decline where the fast stochastic printed a reading below 20 representing an oversold situation. A breakout of the tight range capped by resistance near $560 a share will lead to a test of target resistance with an upside Fibonacci target of $742.

The Bottom Line

For stock prices to continue to rally they generally need to take a pause. During these pauses, new information can arise that allows bearish investors to short these stocks generating a wall of worry. For me, this represents an excellent opportunity to purchases shares especially during their first dip in a fresh uptrend. Both SNAP and NFLX have experienced recent dips, generated by the wall-of-worry associated with new potential congressional oversight concerning antitrust regulations.

Both NFLX and SNAP are scheduled to deliver financial results after the closing bell on October 20. Both stocks have exhibited behaviors that show that the bull-trend is intact and I expect the price to continue to target higher Fibonacci target levels as these stocks continue to climb the wall-of-worry.

Want to learn how we help traders and investors stay ahead of these bigger trends and setups?  Visit www.TheTechnicalTraders.com to learn more about the Technical Trader, my swing trade analysis and alerts, and the Technical Investor, my passive long-term signals service. Stay ahead of the market and protect your wealth by signing up today!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

NOTICE AND DISCLAIMER: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.

 

Snap Could Break Out To New High

Snap Inc. (SNAP) surged to the highest high in nearly two months on Thursday after announcing the launch of personalized public profiles and advanced analytics to their global user base. The initiative expands on prior permissions that allowed only verified celebrities, brands, and official creators to build static profiles, which contain short biographies, recent content listings, and customized lenses.

Snap Expands User Customization

All users can now set up profiles with account photos, bio sections, text descriptions, locations, email contacts, and URLs. They can also customize a creator-curated collection of recent photo/video uploads as well as everything published through the lens studio. New profile features include ‘Stories Replies’, where users can discuss their stories and ‘Quoting’, which allows creators to share and respond to follower inquiries.

Bank of America analyst Justin Post said in a Thursday note he expects the Snap initiative to underpin share price, commenting, “Snap plans to roll out this functionality globally in the coming months…With this announcement Snap blends together existing Snap functionality with new features that are common to apps including TikTok, Instagram, and Twitter and we see a number of potential engagement drivers if the functionality gains traction”.

Wall Street And Technical Outlook

Wall Street consensus rates Snap as a ‘Moderate Buy’, based upon 19 ‘Buy, 9 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $16 to a street-high $30 while the stock is trading less than $3 below the median $26 target in Thursday’s U.S. session. There’s plenty of room for upside in this placement but new investors may wait for more bullish catalysts before jumping on board.

Snap came public at 24 in March 2017 and posted an all-time high at 29.44 in the following session. The subsequent decline hit an all-time low at 4.82 in December 2018 while price action into July 2020 stalled within 5 points of the 2017 high. The stock pulled back into August and has now bounced off the 50-day EMA, raising odds it will complete the long-awaited round trip. Accumulation readings have already hit new highs, indicating that price may soon follow.

Snap Q2 Losses Widen But Revenue Increases; Target Price $28

Snap Inc, an American camera and social media company, reported that its net loss widened in the second quarter to about $326 million as the company suffered a blow from the COVID-19 pandemic, sending its shares down over 2%.

The camera company that develops Snapchat and Spectacles reported that its net loss rose to $326 million in the quarter ended in June, compared to $255 million in the previous year. However, the company’s revenue from advertisement sales surged over 15% to around $454 million.

The Los Angeles-based company said its daily active users (DAUs), a closely watched metric, increased by 17% year-over-year to 238 million in Q2.

“From a macro perspective, SNAP is benefiting from and driving the accelerating structural shift toward transaction/performance-related online ad spend. Essentially, we believe surging e-commerce and rising social commerce have caused an accelerating shift away from less measurable branded spend,” said Brian Nowak equity analyst at Morgan Stanley.

Given the uncertainties related to the ongoing COVID-19 pandemic and the rapidly shifting macro conditions, the company did not provide any expectations for revenue or Adjusted EBITDA for the third quarter of 2020.

Executive comment

“The growing focus on brand safety and privacy across the entire industry places us in a unique position of strength as we have invested in these areas from the beginning of our business,” Snap Chief Executive Evan Spiegel said during an earnings call with analysts, reported by Reuters.

“We continued to grow our community and business in a challenging and uncertain environment,” Spiegel said in a press release. “We are grateful that the resilience of our business has allowed us to remain focused on our future growth and opportunity.”

Snap stock forecast

Twenty-five analysts forecast the average price in 12 months at $25.66 with a high forecast of $30.00 and a low forecast of $16.00. The average price target represents a 3.72% increase from the last price of $24.74. From those 25, 17 analysts rated ‘Buy’, seven rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $25 with a high of $32 under a bull scenario and $14 under the worst-case scenario. Snap had its price objective boosted by Goldman Sachs Group to $29 from $25 and gave a ‘Buy’ rating on the stock. Evercore ISI raised the target price to $25 from $23;

Other equity analysts also recently updated their stock outlook for Snap. Deutsche Bank raised its target price to $28 from $24. Canaccord Genuity lifted their price objective on shares of Snap $25 from $15 to and gave the stock a ‘Hold’ rating. Bank of America reaffirmed a ‘Buy’ rating and set a $28.50 price objective. At last, Credit Suisse Group boosted their price target on shares of Snap to $28 from $18 and gave the stock an ‘Outperform’ rating.

We second Goldman Sachs and Bank of America on Snap stock outlook. We also think it is good to buy at the current level and target at least $28 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“How Big Is SNAP’s User Opportunity? We view SNAP’s primary addressable user market as global/North America internet users aged 13-44. We estimate 13%/39% of this demographic were on SNAP in ’16, reaching 15%/53% by ’20,” said Brian Nowak equity analyst at Morgan Stanley.

“How Big Can SNAP’s Ad Business Grow to Be? We see SNAP ad revenue growing as its engaged & millennial audience is attractive to advertisers. Monetization is still in its infancy and we see ad load growing as well. Innovation and improvements in the ad product are key to spurring forward growth. How Profitable Can SNAP Become? We don’t see SNAP generating positive adj. EBITDA until ’22, but expect healthy operating leverage and high FCF conversion once its ad business scales.”

Upside and Downside risks

Less than expected impact from COVID-19; Increased traction in international markets to drive faster DAU growth and ability to increase advertiser count/bid density driving monetization, Morgan Stanley highlighted as upside risks to Snap.

Inability to continue innovating could hold back user/ad revenue growth; Competition from FB, IG, and private players and a recession could cause advertisers reduce lower ROI/experimental budgets, pressuring ad revenue, Morgan Stanley highlighted as downside risks.

EU Rescue Deal Reached, Equities Jump, Ted Baker Rises

A number of ‘frugal’ countries, most notably The Netherlands, were against the original plan of a €500 billion to €250 billion, grant to loan ratio, especially if the grants didn’t have any conditions. It was agreed upon that €390 billion will be issued as grants, and the remaining €360 billion will be dished out as loans. A system will be put in place to help ensure that grants will be used appropriately, but at the moment traders are just focused on the fact that an agreement was reached.

The FTSE 100 is above 6,300 and the DAX 30 hit its highest level in over four and a half months. The bullish mood this morning is also on account of the optimism that is circulating in relation to the progress being made on developing potential Covid-19 vaccines.

Ted Baker, like other companies that have a high street presence, have been hit hard by the lockdown, but the group revealed than online trading has been significantly higher than expected. For the 11 weeks until mid-July, total sales slumped by 50% but e-commerce sales rose by 35%. The online sales equated to 69% of total sales, which is a huge improvement on the 25% it made up last year. The fashion house stated that trading has been ahead of the base case scenario that was mapped out last month, and that it has made a good start on achieving its full year 2023 goals.

TalkTalk shares saw volatility this morning as the company confirmed it achieved a significant improvement in average revenue per user (ARPU) in June and July, which promoted the company to say its expects to see an improvement in APRU for the rest of the year.

The pandemic impacted the business and it expects the cost to be £15 million, as bad debts are likely to be an issue. Stripping out voice usage and the pandemic impact, there would have been no difference between fourth quarter and first quarter ARPU. The group saw a decline in net debt and it expects earnings to remain stable or possibly even grow a little. The stock initially traded higher but it is now in the red.

AO World revealed an employee incentive plan. The scheme is designed to encourage employers to deliver a better service to customers as well as loyalty to the group. Essentially, if the market capitalisation is driven beyond a certain level – 30% higher from Monday’s valuation at the close – 10% of the additional value will be distributed to the employees as a part of the scheme. The measure is likely to boost morale and in turn help the business.

GVC shares are in the red this morning as HMRC announced it is expanding its investigation into its former Turkish online business. The update from the gaming company was short, but it said the UK tax authority is examining any ‘potential corporate offending’ by an entity within the GVC group.

Bloomsbury’s Publishing revealed an 18% rise in 4 month revenue to the end of June. The lockdown helped digital sales surge by over 60%.

The continued weakness in the US dollar has helped GBP/USD. In June, UK public sector net borrowing was £34.8 billion, while economists were expecting £34.3 billion. The May reading was revised to £44.7 billion, from £54.5 billion.

IBM shares pushed higher in post-market trading last night following the release of well-received second quarter results. EPS was $2.18, topping the $2.07 forecast. On a yearly basis, revenue slipped by 5% to $18.12 billion, but that exceeded the $17.72 billion consensus estimate. Gross margin was 48%, up from 45.1% in the first quarter. The cloud and cognitive division registered a 3% rise in revenue to $5.75 billion, and that was fractionally ahead of analysts’ estimates.

Snap is in focus as it will post its second quarter numbers tonight. The first quarter loss was $306 million, which was a slight improvement on the $310 million loss that was posted one year previous. Traders will be keen to see if the loss narrows further. In the first three months, ARPU increased by 20%, while total revenue rose by 44%.

We are expecting the Dow Jones to open 220 points up at 26,900, and the S&P 500 is called up 24 points at 3,275.

By David Madden (Market Analyst at CMC Markets UK)